How is my credit score determined?

By Amy Smith, Mortgage Planner

 

Credit scores are driving forces for nearly everything these days.  A low credit score may mean having to put a deposit down when opening utilities or not being able to obtain new credit for an auto loan, credit cards or a new home.  With a low credit score you can also count on higher rates on any new financing.  Here’s a breakdown of how your credit score is derived:

1. Payment History – 35% Impact – Paying debt on time and in full are positive marks on your credit report.  Late payments, collections and judgments all have a negative impact on your credit score.
2. Outstanding Credit Card Balances – 30% Impact – A high outstanding balance compared to the available credit can have a big impact on your score, especially if multiple accounts have balances that exceed 50% of the available credit.
3.   Credit History – 15% Impact – The longer you have credit the better your score. 
4. Type of Credit – 10% Impact – A mix of loans (auto, student, credit)  is always better than having a high concentration of one type of loan, especially credit cards
5. Inquiries – 10% Impact – This is based on how many people have pulled your credit in the last 12 months.  If you pull your own credit there is not an impact to your score.

There are quite a number of credit sites that will monitor your credit scores/report for you.  You can also access a free credit report from each bureau through www.annualcreditreport.com once a year.  For a more information on the points above you can click here. Feel free to also visit us online to try our mortgage calculators, request a copy of our insider's guide to credit scoring and home financing, request a copy of our  homebuyers guide or get started on your mortgage application!

To be 20% Down Payment, or Not To Be

By Chong Yi, Senior Mortgage Banker

Today’s mortgage industry is quite different than the days of our parents and grandparents.  I remember the day my dad and I discussed the interest rate that he was able to get for the house I grew up in as a child.  It was not the 4% that we are enjoying today.  In 1980, the best rate my parents were able to secure was 18% and this was considered the norm back then.

It was also the norm to put as much of a down payment as possible when purchasing, and to pay off your mortgage as quickly as possible.  At the very least, most homebuyers would put a 20% down payment so they could eliminate needing mortgage insurance. 

With interest rates being at all-time lows, putting 20% down or more may not always be the best option.  Particularly when you consider what your rate of return could be if instead, that down payment was invested elsewhere.   

For example, if a buyer were to purchase a home at $400,000, and put 20% down, the buyer would be financing $320,000.    A principal and interest payment at 4% would equate to $1,527.  If that same buyer instead put 10% down, they will be financing $360,000 with a slightly higher interest rate to offset the monthly mortgage insurance (a topic I’ll discuss further in another blog).   In this scenario, the principal and interest payment will be $1,770.  

The average buyer would look at this situation and determine it unbeneficial for them because they will be paying an additional $243 per month.  However, the savvy buyer may consider the return on investment (ROI) from the $40,000 that the buyer is saving on the down payment.  The buyer will pay an additional $243 per month so it will be an additional $87,480 in 30 years. However, if the $40,000 were to be invested in an investment vehicle that is returning at 7%, that 40,000 will be $324,659.  This will give the buyer a net ROI of $237,179 after the 30 years.

The bottom line is it’s important to not only look at the interest rate and down payment when considering your mortgage. Since there are many factors to consider, it’s imperative you work with a knowledgeable mortgage lender who is able to provide you with all of your options.

Visit us online to try our mortgage calculators, request a copy of our homebuyers guide or get started on your mortgage application!

Want a seller to accept your offer? You need a pre-approval!

By Amy Smith, Mortgage Planner

Have you ever purchased something online and when it shows up at your door a few days later thought to yourself, wow, that was easy and painless?!   Well, buying a home isn’t that easy.  It’s a process and it involves a lot of moving parts.  Before you start to shop, you need to make sure that you qualify for a loan.  This is where the importance of getting a pre-approval comes in.  Without one, no good real estate agent will work seriously with you and no seller will accept an offer you make to purchase their home.  Things you should know about a pre-approval:

1.   A pre-approval is based on three basic things:  Income, Assets and Credit.
   
2.   You must supply supporting documentation on the three items above for a true pre-approval.  Pay stubs, W-2’s and Asset Statements are a few of the basic items needed.  Your loan originator will also request information to pull your credit.
3.  A pre-approval is typically good for 60 days.  At that point, a new credit report will need to be run and you will need to send updated pay stubs and asset statements.
4. The pre-approval process should be completed BEFORE you start looking at homes.  This helps to eliminate the disappointment of finding the perfect home only to discover that you don’t qualify for it or that you do, but you can’t get a pre-approval letter in time to compete with other offers. Don’t let this be you!  Be prepared!

There really is no such thing as casually shopping when it comes to buying a home.  Getting a pre-approval allows you to avoid the disappointment of missing out on your dream home. Not sure if you're ready to get pre-approved? Not a problem, feel free to spend some time playing with our mortgage calculators, download our mortgage app or request a copy of our new homebuyers guide.